A market based friend of mine passes along an interesting story about the origins of the recent burst of margin calls which have roiled the MBS markets. Supposedly , a large European based investment bank domiciled in a neutral country had need to off load some positions.A very large on the beach money manager firm with a flair for self promotion took advantage of the distressed nature of the seller and procured some very cheap paper.
The unintended consequence of the transaction has been the round of margin calls by repo desks on hedge funds as the repo desks now possessed a metric to value the collateral. And with that another round of forced liquidation might drive prices lower setting up another round in the same game. We are stuck in the very ugly jaws of a game of deleveraging..